US has "negative inflation" for the first time in 50 years

For the first time since 1955, the so-called “headline” rate of inflation in the United States fell below zero. Prices in America last month were, on average, 0.4 per cent lower than they were in the same month last year and 0.1 per cent lower than they were in the previous month. Core inflation was up though experts believe core inflation is about to weaken as well.

Most economists will tell you that negative inflation or deflation is the worst thing that can happen to an economy. No one, so far as I can tell, though is sounding the alarm bells about this trend or that it will last long.

“We think this is the beginning of a short-term stint of negative rates,” writes Dawn Desjardins, deputy chief economist at the Royal Bank. “In the near-term, the growing economic slack will likely continue to pressure prices lower. However, we do not expect a period of sustained negative inflation rates but rather expect the headline rate to move back above zero later this year as the impact of the Obama Administration's fiscal stimulus package and extremely accommodative monetary policy support a return to positive growth and shore up inflation expectations.”

Millan Mulraine, an economic strategist at TD Bank, writes: “With the bargaining power of workers limited by deteriorating labour market conditions, and the pricing power of businesses continuing to be curtailed by the weakening domestic economy, we expect U.S. consumer prices to weaken even further in the coming months. Nevertheless, the weakness in consumer prices is unlikely to descend into a deflationary spiral as we expect prices to recover later this year.”